Networked FDI: Sales and Sourcing Patterns of Japanese Foreign Affiliates


  • We thank Gordon Hanson, Andy Bernard, Beata Javorcik, Kalina Manova, Nicolas Berman, and Peter Egger for constructive and incisive comments that have improved the paper. The access to microdata was arranged by RIETI. This research was partly financed by Grant-in-Aid for Scientific Research (Grant Number 21730194).


This paper applies a novel empirical approach to characterising the horizontal-ness and vertical-ness of affiliates based on Yeaple's complex FDI concept. In its simplest form, horizontal-ness is measured as affiliates’ local sales share while their vertical-ness is measures as their share of non-local sourcing of intermediates. Japanese affiliates in most sectors and nations are partly vertical and partly horizontal, but those in North American are far more ‘horizontal’ than those in the EU and Asia. Affiliates became more vertical between 1996 and 2005. A four-way sales and sourcing split (host, home, regional and RoW) suggests that affiliates act as nodes in regional production networks – especially in Asia. We posit several hypotheses that could be tested with our empirical approach.